Question
In Glutonia, there are 1,000 bakers who buy flour to bake into bread. The marginal revenue product of flour faced by each baker is =600.01
In Glutonia, there are 1,000 bakers who buy flour to bake into bread. The marginal revenue product of flour faced by each baker is
=600.01
MRPF=600.01Q. The flour market in Glutonia is perfectly competitive.
a.Each baker's inverse demand for flour is simply his or her marginal revenue product for flour. Add up the demands of all 1,000 bakers to find the market demand for flour.
=6,000,000+10,000
Qd=6,000,000+10,000P
=6,000,00010,000
Qd=6,000,00010,000P
=6,000,000100,000
Qd=6,000,000100,000P
=6,000,000+100,000
Qd=6,000,000+100,000P
b.The market supply of flour is given by
=150,000
QS=150,000P. Solve for the market price of flour.
P= $
c.At the price you found in partb, how many units of flour will each baker choose to purchase to bake into bread?
Q=
units of flour
d.What is the equilibrium quantity in the market i.e., the total amount demanded by all 1,000 bakers?
Qd=
units of flour
e.Suppose that a decrease in the price of bread reduces the marginal revenue product of flour to
=600.02
MRPF=600.02Q. Add up the demands of all 1,000 bakers to find the market demand for flour.
=3,000,000+5,000
Qd=3,000,000+5,000P
=3,000,00050,000
Qd=3,000,00050,000P
=3,000,0005,000
Qd=3,000,0005,000P
=3,000,000+50,000
Qd=3,000,000+50,000P
f.Find the new market price, the quantity purchased by each baker (Q), and the new market quantity (Qd).
P= $
Q=
units of flour
Qd=
units of flour
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